1. Field of the Invention
The present invention generally relates to conducting online electronic auctions, and, more particularly, to a method and system for selecting potential bidders or suppliers for an electronic auction by using quantitative models to create a prioritized list of potential suppliers.
2. Description of Related Art
Procurement of goods and services have traditionally involved high transaction costs. The cost of finding and qualifying potential bidders has been particularly high. The advent of electronic commerce has introduced new methods of procurement that lower some of the transaction costs associated with procurement. Electronic procurement, in particular business-to-business electronic procurement, matches buyers and suppliers and facilitates transactions that take place on networked processors.
Four models of electronic procurement have been developed: catalog, buyer-bidding auctions, seller-bidding auctions, and exchange marketplaces.
The “catalog” model was an early form of online electronic procurement. Initially, electronic catalogs were developed primarily by sellers, typically suppliers, to help customers obtain information about products, and order supplies electronically. Those first electronic catalogs were single-source; i.e. they only allowed customers to obtain information and products from a specific supplier.
Although the first electronic catalogs reduced the information search cost associated with procurement, customers were disadvantageously “locked in” to one supplier at each electronic catalog. Customers were thus unable to compare a number of competing products in a single catalog. Therefore, certain suppliers with single-source catalogs began including competitors' products in their systems. The inclusion of competing products in electronic catalogs reduced procurement information search costs even further. By offering competing products, electronic catalogs became “electronic markets.”
Many electronic catalogs, however, were biased toward the supplier offering the electronic catalog, and it was thought that procurement costs could be lowered further through an unbiased market. Therefore, third-party “market makers” have developed markets for many standard products and services, which were intended to be unbiased markets. For example, Inventory Locator Services has compiled a database that lists all airplane parts suppliers that have a certain item in stock. Buyers dial into the database to get information on the parts they need. Here, it is a third party, Inventory Locator Service, not a supplier, that is creating the unbiased electronic market.
Electronic commerce using the electronic catalog model typically involves one buyer and one seller at a time. When many buyers compete for the right to buy from one seller, a buyer-bidding auction model, or forward auction, is created. Catalog and buyer-bidding auction models, however, have limitations and do not work well in every situation. For example, it is difficult for a supplier to publish set prices in a catalog for custom products. Therefore, when a buyer requires a custom product, pricing for that product typically will not be found in a catalog. Likewise, it is difficult to specify a custom product and identify buyers who might use that custom product for a buyer-bidding auction. Additionally, there may be only one buyer interested in a custom product, such that a buyer-bidding auction may not be applicable in all cases. Thus, few suppliers can typically provide custom goods and services and standard product and pricing information is typically not available for buyers of custom industrial products.
Referring again to the cost of traditional procurement, and particularly procurement of custom products and services, when a company requires a custom product, a buyer/purchaser for the company would typically procure the product by searching for potential suppliers and then acquiring price quotes from the potential suppliers for the needed custom product. The search tends to be slow and random, and typically relies heavily on personal relationships. The costs associated with locating vendors, comparing prices, and negotiating a deal are therefore large.
As a solution to reduce the cost associated with procurement of custom products and services, supplier-bidding auctions for products and services defined by a buyer have been developed. The assignee of the present application has developed a system in which sellers downwardly bid against one another to achieve the lowest market price in a supplier-bidding auction. The auction marketplace is one-sided, i.e., one buyer and many potential suppliers or sellers, although multiple-buyer auctions are possible. Typically, the products being purchased are components or materials; however, services may also be purchased through auction. “Components” may typically include fabricated tangible pieces or parts that become part of assemblies of durable products. Example components include gears, bearings, appliance shelves, door handles, etc. “Materials” may typically include bulk quantities of raw materials that are further transformed into products. Example materials include corn syrup or sheet metal.
Even in a supplier-bidding auction, the search for potential suppliers may still remain slow and random and the possibility of obtaining price quotes from the potential suppliers with some degree of certainty remains illusive because of the subjective nature of supplier selection. The subjective evaluation factors may include, for example, the buyer's personal impression about the potential supplier, the frequency of prior auction participation by that supplier, etc. Because of such subjective evaluation, many potentially promising suppliers may get overlooked and not contacted by the buyer. It is therefore desirable to reduce the transaction cost involved in supplier selection by devising a scheme wherein potential suppliers are selected objectively and the number of suppliers required at the beginning of a competitive bidding event is dramatically reduced. In other words, it is desirable that suppliers who do not appear objectively promising for a bidding event may not get invited to participate in the auction. It is further desirable to minimize the amount of unnecessary calls to potential suppliers and to maximize the likelihood that a called supplier will place a competitive bid, thereby increasing the bidding yield per supplier selected.